Amid recent controversy regarding illegal activities within international currency markets by licensed traders, a growing number of investment banking executives are calling for a full transition to electronic, computer-based trading platforms that do not rely upon the soon-to-be “obsolete” human “voice spot” trading.
The advantages of a fully integrated electronic trading platform are obvious. By the very nature of the code manifested to create the trading algorithms and platforms, compliance is simply a non-issue. There exist no opportunities for malicious or deviant behavior when all trading is undertaken within a carefully monitored and regulated software infrastructure.
Although electronic trading methods were virtually unheard of at the dawn of the new millennium, roughly 74% of all currency trading now occurs through software platforms. That being said, investors should not completely forget voice trading just yet. In the spot market, where currencies change hands directly and traders themselves assume the risks previously held by market-makers, roughly 35% of all trades still occur via voice trading.
As an increased volume trading switches into the electronic currency trading marketplace, it is expected that the larger players in the industry will continue to grow and quickly develop overwhelming dominance. Currently, the most prominent electronic trading platforms for currency exchange are Deutsche, Citi, Barclays and UBS.
One of the largest criticisms of electronic trading is the decreased profit margins that results from such exchanges. Unlike voice trading, which allowed for decreased transparency and the opportunity to quickly shift massive quantities of wealth, electronic trading typically requires these large actions to be broken into significantly smaller quantities, resulting in increased financial loss and, therefore, decreased profit.
While some believe that electronic trading helps reduce in-office manpower levels, this couldn't be farther from the truth. In fact, electronic trading platforms commonly require up to a 33% increase in personnel, as software algorithms and infrastructure must constantly be maintained. Additionally, many state that this “neutral” interface remains a vehicle for wrongdoing. Claims have been made that these electronic platforms can be engineered to adjust pricing levels depending upon mouse movements and behaviors of consumers, leveraging their uncertainty or desires against them.